Inheritance Discussions Are Worth the Effort for Advisors

February 13, 2023 — Boston

Difficult conversations are crucial to effective wealth transfer

Effective wealth transfer is a common goal of affluent investors, yet bequestors face numerous challenges to fulfilling this objective in both the short and long terms. With total bequeaths projected to exceed $84 trillion among U.S. residents by 2045, addressing and overcoming these challenges is a major issue facing financial services providers, according to The Cerulli Edge—U.S. Retail Investor Edition, 1Q 2023 Issue.

The initial challenge of successful wealth transfer is facilitating timely and useful communication between bequestors and recipients. After years of guarding this information, many investors are reluctant to share details even with the heirs to whom they intend to pass along their wealth. According to Cerulli, only 26% of future bequestors believe they have provided enough information to their heirs for them to be deemed “very well informed,” with an additional 41% rising to the level of “somewhat informed.”

“Unless these conversations are ongoing or well documented, retention rates of nuanced details of complex subjects discussed only once are quite low,” says Scott Smith, director. “Thoroughly sharing this information and supporting rationale with intended recipients and other stakeholders may create discomfort in the short term but is an important step in minimizing costly and divisive legal battles in the future.”

Understanding how and where future bequests are held is another key element of wealth transfer. Management by a financial advisor (34%) and held in a trust (31%) are two of the most common disposition scenarios. In most cases, these are intentional choices made by bequestors because of the confidence they have developed. Sharing the basis and explanation of these choices with inheritors can be a significant factor in helping foster these relationships through the next generations and offering a degree of prudent advice can facilitate sustained familial wealth.

“With harmonious wealth transfer being a primary objective among affluent clients, it is incumbent upon advice providers to encourage or even facilitate these discussions to take place as early as possible,” says Smith. “By doing so, they not only potentially forge their own relationships with inheritors, but also hopefully reduce the incidence of bitter litigation among heirs.”

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Note to editors

These findings and more are from The Cerulli Edge—U.S. Retail Investor Edition, 1Q 2023 Issue.

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